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Pensions, Risk and Investment Conference 2016 with AFIR /ERM

31 May 2016 - 2 June 2016

About this event

This year's event will encompass the Pensions, Risk and Investment Conference. Each conference will run independently PRI logoas it does each year, however in 2016 delegates are offered the opportunity to attend a variety of cross practice sessions, get involved in number of topical discussions and network with those from different specialisms to discuss mG04: Professionalism and Ethics in Real Lifeutual interests and experiences. Attendees will be provided with three days of knowledge exchange and CPD learning alongside a selection of plenaries, workshops and technical skills.

Read interviews with the three chairs from each individual practice area and their thoughts on this new collaborative conference.

AFIR/ERM logoThe Institute and Faculty of Actuaries have invited the Actuarial Approach for Financial Risks/Enterprise Risk Management (AFIR/ERM) section of the IAA to join the IFoA Pension, Risk and Investment Conference 2016 and we are delighted to be able to offer our members the opportunity to engage with members of AFIR/ERM from all over the world.  This will provide an ideal opportunity for both societies to discuss the latest challenges and successes in risk management and exchanging of ideas and best practices. 

You are still able to download the videos from the Pensions and the Risk and Investment Conference 2015.

Accommodation can now be booked.  Find out more.

President's Lunch

Join IFoA President, Fiona Morrison, for an informal lunch where she is keen to hear your views on the actuarial ‘sales pitch’. What makes actuaries unique? How would you summarise who actuaries are and what they do? What is the actuarial skillset? Your thoughts will be used to explore how we can promote actuaries both in doing different things in established areas, and in moving outside of the traditional actuarial areas of work. Sign up now as limited spaces are available.  Contact Rebecca Goreham.

We are pleased to confirm our after dinner speaker for Wednesday 1 June:

Lord Finkelstein OBE

Daniel Finkelstein is a columnist and Associate Editor of The Times, responsible for the digital edition. He is also a member of the Lords and an advisor to the Conservative Party.


Thanks to the Conference Programme Committee:

Barbara Fewkes (Chair of Pensions area) Barnett Waddingham
Craig Edmondson (Pensions) Mercer
Steven Keller (Pensions) Aon Hewitt
Stephen Wilcox (Chair of Risk area) Allianz
Claire Fraser (Risk) Standard Life
Michael Henderson (Risk) Barnett Waddingham
Emily Penn (Chair of Investment area) LV=
Dick Rae (Investment) BMO Global Asset Management
Anil Shenoy (Investment) Henderson
Andrew Smith (AFIR/ERM area) Deloitte
Hannah Watson (Event Manager) IFoA
Elvis Gannon (Practices Manager, F&I, Pensions IFoA
Dawn McIntosh (Practices Manager, RM) IFoA


Registration Tue, 31/05/2016 - 17:00 - 18:45 Registration
Plenary session Tue, 31/05/2016 - 18:45 - 19:00 Welcome to the Conference
Plenary session Tue, 31/05/2016 - 19:00 - 20:00 Plenary 1: Risk and Decision-Making: Some Lessons from a Fighter Pilot

Regulation and process are essential foundations in managing risk but when operating in a world where lots of variables are outside of one’s control and inter-connected in ways which might not be clear, then it also necessary to equip and empower teams and individuals to make decisions faced with ambiguity, imperfect information and under time pressure.  Justin Hughes draws lessons from his time as a Red Arrows pilot and 12 years’ consulting on risk and safety to explore the ‘art’ of risk management.

Speaker: Justin Hughes, Mission Excellence

Dinner Tue, 31/05/2016 - 20:00 - 23:00 Welcome Reception and Dinner

Have the opportunity to network with your colleagues and make new connections while enjoying a relaxed buffet dinner.

Plenary session Wed, 01/06/2016 - 09:00 - 09:30 Welcome and Presidential Update

Speaker: Fiona Morrison, President, Institute and Faculty of Actuaries

Plenary session Wed, 01/06/2016 - 09:30 - 10:30 Plenary 2: Is the New Normal High Risk and Low Returns?

This talk will cover:

  • Is the equity bull market over?
  • Is the great bond bull market over?
  • UK interest rates and the housing market.
  • Volatility: the new normal.

Speaker: Steven Bell, Chief Economist, BMO Global Asset Management

Refreshments Wed, 01/06/2016 - 10:30 - 11:00 Morning Refreshments and Exhibition
Workshop Wed, 01/06/2016 - 11:00 - 11:50 Workshop Session A

Pensions Sessions

A1: Integrated Risk Management for DB Pension Schemes WP

The Pensions Regulator’s latest Code of Practice includes guidance to trustees on integrated risk management techniques i.e. ways of assessing the three keys risks relating to defined benefit pension schemes – funding, investment and covenant – and creating a framework for the management of these risks. The WP will produce a series of case studies, illustrating the interaction between the different types of risk, potentially lead the way in establishing risk management models that would be helpful to pension scheme trustees and sponsors.

Speakers: Andrew Hitchcox and Marian Elliott, Members of the Working Party



A2: Lifetime Incomes in a DC World

There are many challenges developing retirement income products in Defined Contribution (DC) environments 

  • Methodology:  Applies traditional actuarial ‘building blocks’ to develop an approach that manages key risks and still provides secure lifetime income for later ages 
  • Social benefit:  Collectively, generates more efficient use of accumulated retirement funds 
  • Implementation:  Considers some implementation and regulatory issues and gives several examples of current products.

Speakers:  Julian Gribble, International Association of Insurance Supervisors and Cary Helenius, Equity Risk Management


A3: Environmental Change: A Practical Guide for Pension Actuaries

Discussion of initial ideas from the working party that is developing this practical guide, eg

  • What are the implications of climate change and natural resource constraints for today’s actuarial advice?
  • How can actuaries take account of environmental risks when advising on pension scheme funding and should they do so?
  • How does this interact with investment and covenant advice?

Speaker: Robert Hails and Ruairi Campbell, Members of the Pensions/Resource and Environment Cross-practice Working Party


Risk Sessions

A4: Tail Fitting Probability Distributions for Risk Management Purposes

This session will explore:

  • The importance of the tail behaviour of loss and/or return distributions for risk management purposes
  • The strengths and weaknesses of (traditional) extreme value theory (EVT) techniques
  • Refinements to these techniques that allow efficient tail fitting of a wide range of probability distributions
  • Other uses of these refinements that are relevant to actuaries.

Speaker: Malcolm Kemp, Nematrian


A5: Making (Non)Sense of Forward Looking Risks

Trying to make valuable use of Stress and Scenario testing, Reverse Stress Testing, Emerging Risk Analyses, Regulatory Horizon scanning, and Resolution and Recovery planning involves making (non)sense of this melting pot of overlapping rules and objectives. This talk will make the audience think about how these concepts interlink and then the practicality of making them useful and value add in the business. No prior knowledge needed as concepts are generic and intended to be thought provoking.

Speaker: Philip Tervit, AEGON


A6: What is Funding Liquidity Risk and how can a Bank Manage it?

  • Funding liquidity risk was the biggest risk that banks faced during the financial crisis in 2007/08.
  • Funding liquidity risk is entrenched within the banking system. Banks are exposed to this risk and must manage it.
  • Iain will look at why a retail bank faces funding liquidity risk and how it can be incorporated into a bank's fund transfer pricing.

Speaker: Iain Ritchie, Heriot Watt


Finance and Investment Sessions

A7: An Introduction to Impact Investing

Historically capital markets have tended to focus on financial returns, and until relatively recently have only measured and reported on this. There are, however, a number of non-financial considerations which have a clear impact on global well-being and on long term financial returns (such as good corporate governance). Impact Investing is when one of those non-financial factors – a defined social impact – is as important a consideration as the financial outcome. This session will introduce Impact Investing, and consider the difficulties of measuring impact and how actuaries can get involved.

Speakers: Members of the Social Finance and Impact Investing Working Party


A8: Gilts. Vs Swaps – What’s Going Down?

(This talk will be aimed at Investment but also Life and Pensions actuaries)

Gilts and swaps are both important hedging instruments for insurers and pension funds, but the basis between them can be volatile and in 2015 gilts significantly underperformed. We look at the drivers behind this.

  • Solvency II
  • International developments
  • Regulatory pressures on other investors e.g. banks
  • How same pressures are creating disclocations and opportunities in other markets e.g. cross-currency.

Speakers: Paul Fulcher and Richard Boardman, Nomura International plc

A9: Going above and beyond: stronger investment and practice

There are significant limitations to mainstream investment theory and how it is used in investment practice.

Rather than mechanistic systems operating close to or at equilibrium, financial markets should be recognised as perpetually changing ecologies of beliefs, strategies and cultures, competing for survival.

This session will present a stronger investment model that begins to address the complexity innate to the investment industry.

Speakers: Jeremy Spira and Liang Yin, Willis Towers Watson


Suitable for all

A10: Regulatory Rundown

This session will cover:

  • the new standard APS X1
  • the revised TAS framework;
  • Risk Alerts
  • Everything you need to know about the key recent regulatory developments for actuaries (and more).

Speakers: Christine McConnell, Head of Regulatory Compliance and Emma Gilpin, Senior Regulatory Lawyer, IFoA

AFIR/ERM Sessions

A12: 2 x 25 minute talks in each session

A11: The Impact of Longevity Risk Hedging on Economic Capital
We consider the different options for hedging longevity risk in the presence of basis risk and what the impact is of different hedges on economic or regulatory capital.Using a Danish case study, we consider the issues involved in calculating economic capital. How is this assessed? Do we use the same multi-population mortality model for simulations and valuations? How do we simulate the payoffs of different hedging instruments? How do we assess the impact of these hedges on economic capital? And what role does the price of the hedging instrument have to play in assessing the effectiveness of the hedge?
Speaker: Andrew Cairns, Heriot Watt University

A11: Long guarantees with short duration: The rolling annuity
We present a new type of with-profits annuities which has been implemented in a nation-wide Danish pension plan. The rolling annuity gives a minimum lifelong guarantee complemented with a series of guaranteed increases prior to retirement. The structure of the guarantee implies that, prior to the last increase, the liability is equivalent to a zero-coupon bond maturing at the next increase and therefore easily hedgeable in financial markets. The short duration implies that financial and regulatory value (essentially) coincide. We show financial fairness and we derive the reserve and thereby the hedging strategy.
Speaker: Søren Jarner, ATP

A12: 2 x 25 minute talks in each session

A12:  Extensions to the Wilkie investment model
The original Wilkie modle modelled share prices modelled through dividends and dividend yields. Share earnings were not considered, because the data series was too short. With 50 years of earnings data now available we produce using new models for earnings and dividend cover to give dividends, and using dividend yields get prices and P/E ratios. We describe this new model and its properties.  
Speakers:  David Wilkie, InQA Limited

A12: A Single Factor CAPM in a Multi-Currency World
At the 2013 Colloquium the authors presented a paper on a single-factor CAPM in a multi-currency world. Some problems have since been found with the application of the methodology of that paper. In this paper, in the light of further research, the model developed in the earlier paper is revised. A new approach is adopted, which resolves those problems. The aim of this research is primarily to give actuaries a way ahead in the use of the single-factor CAPM in a multi-currency world for the stochastic modelling of assets and liabilities, particularly for liability-driven investments and market-consistent valuation.
Speakers: Robert Thomson and Taryn Reddy, University of the Witwatersrand

Transfer time Wed, 01/06/2016 - 11:50 - 12:00 Transfer time
Workshop Wed, 01/06/2016 - 12:00 - 12:50 Workshop Session B

Pensions Sessions

B1: Buying in Bulk

Scottish Widows will provide a view on the bulk annuity market over 2015 and 2016 to date, and look ahead. The presentation will also cover Solvency II and its impact on insurer pricing, investment strategy, and the market overall. Scottish Widows is a new entrant to the bulk annuity market, and so we will endeavour to provide a fresh perspective.

Speakers:  Rosie Fantom and Michael Edwards, Scottish Widows


B2: Legal Developments Review

Robert West, a Partner in Baker & McKenzie's London Pensions Department, will take a look at some of the most significant legal developments over the last year, including new legislation and some of the issues which have been attracting the attention of the Courts, the Pensions Ombudsman and the Pensions Regulator.

Speaker: Robert West, Baker & McKenzie LLP


B3: Accessing Illiquidity in the DC market

The working party will present a summary of the challenges faced by UK DC schemes in relation to investing in alternatives and illiquid assets. Case studies and potential solutions will be highlighted in addition to illiquid DC solutions in other markets. This is likely to be of interest to those with pensions and investment backgrounds.

Speakers: Jenny Swift and Tom Curtis, Members of the Working Party


Risk Sessions

B4: The Effective Communication and Disclosure of Model Risk

This talk is presented by the IFoA's Model Risk working party (Phase 2) and provides latest thinking around effective communication and disclosure of model risk, and how this can add value to a business.   In particular, the talk will focus on how to engage senior management and NEDs to understand the breadth and depth of how model risk can impact an organisation, and how firms can develop disclosures around their model risk management practices to enhance regulator and shareholder confidence.

Speakers: Nirav Morjaria and Louise Witts, Members of the IFoA's Risk Working Party


B5: How Should Society Choose Where to Direct Flood Resources?

This talk by the IFoA Flood Working Party will consider how governments might try to deal with the problems caused by flooding, including influencing the insurance industry, implementing practical measures, and responding to catastrophes. How might the government choose who to protect with flood defences – and who to harm with them? How does the UK compare to other countries in its approach? Given our finite resources, what might the outlook be for the future of flood in this country?

Speakers: Philippa King and Neil Chapman, Members of the IFoA Flood Working Party


B6: Mortality from Modeling to Pricing: Challenges and Solutions

  • Mortality Securitization in practice for more than a decade now
  • Many new Catastrophic Mortality Bonds or CATMS still being launched
  • Most products offer old wine in new bottles
  • Academicians and Practitioners looking at the herald of a new life market
  • Many questions need immediate attention
  • This presentation offers state of art solutions to some of these problems.

Speaker: Raj Bahl,


Finance and Investment Sessions

B7: Meeting the investment challenges of Solvency II

  • A low interest rate environment has challenged insurers seeking to balance investment returns with acceptable levels of risk.
  • Moving into higher-yielding assets may however generate additional capital requirements under Solvency II.
  • This session outlines how an insurer and asset manager worked together to develop an investment strategy that balances improving yield, diversifying risk and a lower cost of additional capital.

Speakers: Russell Baird, Kames Capital and Andrew Dickson, Aegon UK


B8: Investing through times of changing climates

  • Climate change creates significant uncertainties for long term investors.
  • Changing dynamics in government policies are putting pressure on traditional business models.
  • How we finance the transition to new sources of energy will influence investment returns.
  • The ability to model the ‘losers’ and winners’ in this transition will become imperative.
  • Indices that utilise emerging datasets effectively should appeal to investors wanting to benefit from financing a global solution.

Speaker: Meryam Omi, Legal and General Investment Management


B9: Managing the Matching Adjustment - Perspectives from Asset Management and Audit

UK insurers have now been managing Matching Adjustment portfolios for five months.

In this session, an Asset Manager and Auditor will:

  • Discuss the implementation challenge insurers have faced
  • Provide examples of best practice
  • Assess the potential pitfalls for firms and how to avoid them
  • Explore how insurers are optimising their Matching Adjustment portfolios, including through new asset classes or structures

Speakers: Iain Forrester, Standard Life Investments and Scott McNeill, PwC

Level: Some technical knowledge required.


B10: Masterclass: Proactive Networking for Business Impact

Master Class logoHow to build your network with authenticity, the mistakes most people make when building relationships and how to create the time and space to do it well. Also discover the different types of 'networker' and the success criteria modelled by the best networkers.

 Speaker: Simon Paine


AFIR/ERM Sessions

B11: 2 x 25 minute talks in each session

B11: An Ethical Decision-Making Process for South African Retirement Funds

As the principal decision-makers in retirement funds, trustees have a number of duties placed upon them. This paper interprets the duties of trustees and their advising actuaries in terms of a selection of ethical theories. A decision-making framework based on the actuarial control cycle is developed as an initial attempt to formalise the process of ethical decision-making in South African retirement funds. This framework is applied to various case studies which illustrate that, although the framework itself does not provide ethical solutions, it assists trustees, and the actuaries who advise them, with the process of making an ethical decision.

Speakers: Megan Butler and Taryn Reddy, University Of The Witwatersrand Johannesburg

B11: Model Governance: The Framing of Decision-making by Risk Modelling

I introduce the notion of framing effect of mathematical models and its importance for the actuaries. I hypothesize that this poor-documented effect contains a specific representation of risk mathematically modelled by probability measures. Next I use a performativity based approach to describe the unintended effect of this risk representation in the field of financial decision-making. I argue that it is not possible to tackle the model governance issue without epistemologically scrutinizing this framing effect. I conclude with consequences for actuaries: for achieving trustworthiness in the sense of ISAP 1 # 1.1, it is necessary to not outsource epistemic responsibility.

Speaker: Christian Walter,  Fondation Maison des sciences de l'homme


B12: 3 x 15 minute talks in each session

B12: Debt Portfolio Optimization: An Answer from the Asset and Liability Management Viewpoint

The task of clearing accumulated social deficits has been assigned to a unique institution since 1995, CADES. The process of social security debt build-up and repayment encompasses a mechanism of choice between letting deficits build up and transferring them to CADES which follows a peculiar rationale, that can be interpreted in a probabilistic framework. This can be factored in as a jump option of the debt expansion process. Debt management optimization can be tackled with modern portfolio theory, in both static and dynamic frameworks. Our research of an optimal debt portfolio is illustrated with some outputs from our ALM tool.

Speaker:  Eric Ralaimiadana, CADES

B12: Quantitative Factor Investing in Corporate Bonds

'Smart beta' has gained popularity in the personal finance sphere, but the concept is far from new; whereas common in equity markets, it's relatively unexplored in credit markets. Taking seven well-known equity-market factors we apply these concepts to the UK corporate bond market. We study the characteristics of factor portfolios and find evidence of outperformance versus the market across several metrics, even after accounting for differences in systematic risk and transaction costs, but the outperformance is volatile. We study multi-factor strategies and their diversification effects. We study holding strategies resulting from the trade-off between factor dilution and incremental transaction costs.  

Speaker: Paul Van Loon, Heriot Watt University

B12: Credit Benchmarking, Risk Premium Adjustment Factors, and Credit SCRs

This article constructs a framework for computing the SCRs required for the protection of credit portfolios of insurers.  After a brief survey of the extant technology on rating transitions and default probabilities, the paper provides new results on risk premium adjustment factors. Then, a procedure for reconstructing a market-consistent history of investors' credit portfolios from quoted indices is given. The reconstructed historical credit values are then calibrated to mixed empirical-Generalized Pareto Distribution (GPD) dynamics. Several validations to our calibration are also provided. Finally, credit Solvency Capital Requirements are computed and an analysis of these results per rating class is given.

Speaker: Olivier Le Courtois, EMLyon Business School

Refreshments Wed, 01/06/2016 - 12:50 - 13:50 Lunch and Exhibition
Networking Wed, 01/06/2016 - 12:50 - 13:50 Presidents Lunch

Join IFoA President, Fiona Morrison, for an informal lunch where she is keen to hear your views on the actuarial ‘sales pitch’. What makes actuaries unique? How would you summarise who actuaries are and what they do? What is the actuarial skillset? Your thoughts will be used to explore how we can promote actuaries both in doing different things in established areas, and in moving outside of the traditional actuarial areas of work.


Workshop Wed, 01/06/2016 - 13:50 - 14:40 Workshop Session C

Pensions Sessions

C1: International DC Arrangements: What can we learn?

The trend towards DC arrangements, both Mandatory and Supplemental, has been global. Multinationals have embarked on global strategies to better manage pension risk and are starting to implement global best practices across their International DC plans. This session will review the different types of international DC plans (considering investment options, guarantees, payout options and employee education) and how Fiduciary Risk is being managed and the trends to improve outcomes.

Speaker: Mark Sullivan, Fidelity


C2: CMI Update

This talk will cover the latest thinking from the CMI of interest to pension actuaries on both base mortality and future improvements including:

  • An overview of recent findings from the SAPS investigation and plans for future work
  • The challenges of “High Age” mortality and recent national mortality experience
  • Current thinking on potential future changes to the CMI Model.

Speaker: Deborah Cooper, Chair, CMI SAPS Committee


C3: Retirement Adequacy - Engaging the Millenials

Life funding is changing with a transfer of responsibility from the state to individuals. Auto-enrolment gifts millions of customers and billions of assets to those companies that can offer a new customer experience, appropriate for the next generation - a real growth opportunity. But how to engage the next generation? This talk presents the outcome of collaboration between industry, the actuarial profession and youth financial education charities - exploring what the next generation of customers want and how we can engage with them.

Speakers: Sandy Trust, Grant Thornton and Professor Liam Delaney, Professor of Behavioural Economics, University of Stirling


Risk and Pensions Session

C4: A Decade of UK Pensions Risk

De-risking has been a big theme in UK pensions over the last decade, but have schemes done it in the most effective way? And has it left them on track to close deficits and be fully funded?Data from the PPF 7800 index gives us valuable insights into what measures schemes have taken in aggregate to de-risk. For the first time we have brought together data from the PPF 7800 index, the KPMG LDI report and the Hymans Robertson FTSE350 pensions report, along with proprietary modelling to gain insight into the changing risk profile of uk pension funds.

Speaker: Dan Mikulskis, Redington


Risk Sessions



C6: New Developments in Economics and the Impact on Investment, Risk and Pensions

Economics has been developing rapidly in recent years, particularly since the financial crisis of 2008 exposed weaknesses in the dominant school of economics; the neoclassical school. Other strands of economic thinking, such as behavioural, evolutionary, post-Keynesian, and ecological economics, offer the promise of better ways of understanding and modelling the economy as a complex system. They could be helpful in answering some of the key research questions for actuaries. For example, what causes financial crises, what is a reasonable long run investment growth rate, how to get an environmentally sustainable economy and financial system and what causes short term changes in GDP and employment? This workshop provides a brief overview of some of the most important new thinking in economics and its relevance to actuaries.

Speaker: Oliver Bettis, Chair of the Research Subcommittee for the Resource and Environment Board.


Finance and Investment Sessions

C7: Taking the Right Amount of Liquidity with Insurance Assets

  • Less liquid assets, including private market assets, provide attractive investment opportunities to enhance yield and return, and improve overall efficiency.
  • Insurers realise that they are often taking insufficient advantage of the illiquidity premium, especially with risk-free rates remaining at very low levels.
  • A liquidity budgeting exercise and ongoing liquidity risk management framework can help insurers determine the appropriate allocation to less liquid assets.

Speakers: Ravi Rastogi and Andrew Epsom, Mercer


C8: Calibrating Scenario Generators for Pensions ALM

This paper considers assumption setting for long term asset-liability studies. For calibrating the volatility of inflation and interest rates, should we look at the historic index level, or the changes in index levels? Should asset return volatilities be measured in nominal or real terms, or with reference to returns in excess of cash? How should we calibrate risk premiums and is mean reversion real? What are the arguments for and against calibrating market implied volatilities based on options, caps/floors or Swaptions? Might the appropriate calibration methodology be different for advising management or Trustees?

Speakers: Yona Chesner and Phil Hardingham, Deloitte


C9: “It was the Best of Times, it was the Worst of Times”

Asset strategy is evolving and driven by more than regulatory changes. Optimal asset allocation is an ideal. Efficient frontiers are fine in theory but are not optimal once you allow for fundamental and practical considerations. A collaborative and evolutionary approach is essential where asset owners recognise that portfolio objectives differ with liabilities and asset managers adapt to the specific needs of each client. We look at translating investment strategy into sustainable, implementable, asset management mandates.

Speakers: Daniel Blamont, Phoenix Group and Dick Rae, BMO Global Asset Management


Pensions and Finance and Investment Session

C10: Turning Savings into Retirement Income -Working Party Update

This working party was set up to illustrate how much income an individual might expect to receive during the different phases of retirement dependant on their initial pot size and their retirement income decisions. We are investigating whether it is possible to devise some useful rules of thumb that could non-advised consumersat / during their retirement journey and would like to share progress to date and gather your feedback.

Speaker: Robert Dundas, Royal London


AFIR/ERM Sessions

C11: 2 x 25 minute talks in each session

C11:Probability Distribution Estimation and Back Testing

Businesses estimate probability distributions for purposes including calculation of expected cash flows and value-at-risk. This paper examines how these distributions may be derived from scarce data. We evaluate tools for incorporating model risk, including Bayesian and bootstrap techniques, using unbiased parameter estimates as a control. Each method is rated according to its back-test performance and robustness to model mis-specification within a Bhattacharyya ball. We provide extensive numerical examples based on a problem of forecasting a future loss distribution given ten historic loss observations.

Speakers: Andrew Smith, Deloitte; Stuart Jarvis, and James Sharpe


C11:  Investment Capital Charges: A Top-Down Observable Price Approach

Solvency II investment capital charges (99.5 VaR) are determined through a “bottom-up” approach where specific risk charges – rate, spread, equity, currency, concentration and property risk, are calculated first and then aggregated via a correlation matrix to arrive at a combined risk charge for investments. In this session, we will compare the Solvency II bottom-up approach with a “top-down” approach.  The top-down approach utilizes historically observed prices to calculate portfolio level’s VaR and further decomposes the VaR into key risk drivers. The discrepancy between the VaRs from bottom-up and top-down approach is rather significant and have particular implications to insurers.

Speaker: Mark Yu, Gen Re - New England Asset Management


C12: 2 x 25 minute sessions

C12: Equity Investing with Targeted Constant Volatility Exposure

Motivated by empirical evidence of the asymmetry in the relationship between equity market return and volatility, where returns and conditional volatility are negatively correlated, we develop an approach that enables targeted constant volatility equity portfolios to be constructed. We  find that certain targeted constant volatility portfolios can generate substantial improvements in performance, both in terms of return and risk, resulting in long-run cumulative return outperformance relative to the stock index benchmark. Important features of these targeted constant volatility portfolios are their reduced exposure to stock market crashes and their low transaction costs relative to other approaches.

Speaker: Michael Sherris, University of New South Wales


C12: Dollar/Ladder Investment and Universal Portfolio for Pension Schemes
AFIR/ERM indicates mutual use of knowledge and found among actuarial world and other industries, and, this paper shows examples. Firstly, investment strategies for accumulation / decumulation phase of pensions, including bucket strategy, are revisited, giving a relevance of dollar / ladder investment. Dollar investment is popular among retail equity investors and so is bond ladder investment among banks. This paper focuses on DB pension’s time diversification investment and dynamic allocation, not DC life cycle investment nor the timing of annuitization. Secondly, universal portfolio of equities, which has close relationship of electronic information theory, is expanded for new investment return sources.
Speaker:  Miwaka Yamashita: Advisor, Tokiai Tokyo Financial Holdings / Executive Officer, All Nippon Asset AM. Research Fellow, Aoyama Gakuin University

Transfer time Wed, 01/06/2016 - 14:40 - 14:50 Transfer time
Plenary session Wed, 01/06/2016 - 14:50 - 15:50 Plenary 3: Have we Undermined the Ability of Pension Funds and Life Companies to Invest Long-term?

A report by the Bank of England into the asset allocation of pension funds and life companies evidenced significant derisking, procyclical behaviour and herding. These findings call into question whether such institutions are investing long-term. Have mark-to-market based regulation and accounting combined with industry practices to cause long-term institutions to behave like short-term ones? This session will explore these issues, the causes and debate possible solutions.

Speaker: Ashok Gupta, Joint Deputy Vice Chair, BoE Procyclicality Working Party

Refreshments Wed, 01/06/2016 - 15:50 - 16:20 Afternoon Refreshments and Exhibition
Plenary session Wed, 01/06/2016 - 16:20 - 17:20 Plenary 4: Let’s Get Professional

Professional Skills logoThe session looks at what it means to be professional and striking a balance with good regulation.  Case studies will allow delegates to consider practical illustrations in an everyday work context.  The content is designed to meet the Stage 3 professional skills training for experienced members requirements.

Speakers: Malcolm Slee, Professional Content Development Working Group and Christine McConnell, IFoA

Social Wed, 01/06/2016 - 17:20 - 19:00 Leisure time
Dinner Wed, 01/06/2016 - 19:00 - 23:55 Conference Dinner at the National Museum of Scotland

Enjoy a drinks reception and three course dinner at the iconic National Museum of Scotland in Edinburgh City Centre.


After Dinner speaker: Lord Finkelstein OBE

Daniel Finkelstein is a columnist and Associate Editor of The Times, responsible for the digital edition. He is also a member of the Lords and an advisor to the Conservative Party.


Plenary session Thu, 02/06/2016 - 09:00 - 10:00 Plenary 5: Practice Area Specific

Risk Plenary

Building Better Judgements

Building on research carried out under the auspices of GIRO, members of the Working Party and a London Market CRO discuss how we can minimise the risk of making poor judgements. Including real-world case studies and theoretical research, this plenary will be of interest to everyone who needs to make judgements in their work.

Speakers: Martin Burke, CRO, Mitsui Sumitomo and Jo Lo and Nicholas Bonello, Members of the Getting Better Judgement Working Party


Finance and Investment and Pensions Plenary

Helping People Make the Most of Their Pensions

This talk will cover:

  • Helping People Make the Most of Their Pensions
  • Pensions landscape has changed so that individuals need to take responsibility for their retirement income
  • Access to pensions guidance currently available and what is covered by guidance
  • Experience since Freedom & Choice changes
  • How can schemes, employers and the guidance providers work together to support individuals
  • Access to advice
  • Shopping around is more important than ever
  • Innovation in the ‘at retirement’ market.

Speakers: David Berenbaum, Senior Technical Specialist and Team Leader on the Policy and Technical Team, The Pensions Advisory Service and Philip Brown, Head of Policy, LV=

Refreshments Thu, 02/06/2016 - 10:00 - 10:30 Morning refreshments and exhibition
Workshop Thu, 02/06/2016 - 10:30 - 11:20 Workshop Session D

Pensions Sessions

D1: The Latest on Pension Tax Relief: What Does it Mean for You?

The Budget did not bring the expected complete upheaval to pensions tax relief (yet); but the regime nevertheless gets ever-more complex.  The session will examine the opportunities and pitfalls for the pensions actuary in advising trustees and corporates.  (May also be interesting to pension savers)!

Speaker: Karen Goldschmidt, Lane Clark & Peacock


D2: Investing for Self Sufficiency – Objectives and Strategies

An increasing number of UK pension schemes are focussing on the end game. For many of these schemes, the end game is self-sufficiency. Self-sufficiency tends to be measured in terms of assets versus present values of liabilities. However, the objective of a self-sufficient pension scheme should be to meet all of the cash flows as they fall due, or at least to do so with a high degree of certainty. In this session we will describe a measurement approach that better reflects the objective of self-sufficiency, as well as looking at the implications for asset allocation strategies.

Speaker: Paul Sweeting, Legal and General Investment Management


D3: The Impact of Behavioural Economics and Finance on Retirement Provision in South Africa (SA)

The choices made by stakeholders (including trustees and members) in a DC retirement environment may pose a threat to a member’s financial wellbeing in retirement. Behavioural principles can help explain these choices:

  • Applicable principles are explained and then illustrated in the SA environment.
  • Stakeholder behaviour and possible ways to harness behaviour to improve retirement wellbeing are then discussed.

Speakers: Natalie van Zyl, Stellenbosch University and Daniel van Zyl, Sanlam


Risk Sessions

D4: Lies, Predictions and Forecasts - How to Guess the Future

As actuaries we are used to thinking about the future and making assumptions that can be used in projections for pricing, capital calculations, etc. The demands to look more at highly uncertain outcomes mean we are often faced with limited, or no, data to base these on. The pace of change in general also means that it can be hard to know how far into the future your estimates will be valid. This session introduces applied examples of approaches you can use to make structured sense of the future under these conditions and make sound choices for your assumptions.

Speaker: Neil Cantle, Milliman



Finance and Investment Sessions

D7: Embracing Illiquidity

UK DB pension schemes today are in a worse funding position than they were at the start of 2009. The outlook is bleak; equity markets are set for single-digit returns and bond yields are expected to remain low. Schemes should allocate to less liquid private markets investments. The average pension scheme has a recovery plan of 10+ years and a duration of 20+ but can liquidate most of their investment portfolio in a quarter: why? We will discuss and define illiquidity premia, which asset classes exhibit them, how they can be accessed and what the benefits, challenges and risks are.

Speakers: Simon Partridge and Luke Dixon, BlackRock


D8: Effective Outsourced Asset Management

Insurers engage asset managers across a range of mandates from single portfolios through to full outsourcing. Increasingly even apparently simple mandates need to satisfy a range of client specific constrains and meet complex objectives. In this session BlackRock and Novae outline important considerations in the design and implementation of effective investment strategies.

Speakers: Henry Ashworth, BlackRock and James Kenney, Novae


D9: Sourcing bonds for Matching Adjustment Portfolios

The Matching Adjustment has had a significant impact on the management of bond portfolios backing annuity liabilities. One issue which insurers are grappling with is finding suitable bonds which meet the stringent Matching Adjustment criteria. As a result insurers are increasingly working directly with borrowers to create bonds which are Matching Adjustment compliant. Allen Twyning who is Head of Debt Origination at Pension Insurance Corporation and Anil Shenoy, Director of Institutional Business at Henderson Global Investors provide an overview of this market and highlights some of the practical issues that need to be considered when structuring such bonds.

Speakers: Anil Shenoy, Henderson Global Investors and Allen Twyning, Pension Insurance Corporation


D10: Masterclass: Communication for Leaders and Future Leaders

How Master Class logoto create alignment and use effective communication to inspire, motivate and influence people. Learn your personal blueprint for delivering effective communication and the power of developing your internal dialogue.

Speaker: Simon Paine


AFIR/ERM Sessions

D11: 2 x 25 minute talks

D11: Better ALM and Liquidity with Stochastic Liability Modelling

Common sense says to match illiquid liabilities with illiquid assets. We settle on the best estimate projection, assume it's fixed and match with assets. In this seminar, we aim to ​formalise that common sense around ALM and extend it. We model liabilities stochastically and probabilistically to compare ALM needs and optimise the mix between liquid and illiquid assets to give a reliable ALM match. We then consider approaches for dealing with uncertainty around liability risks, including behavioural risks. We may also consider topics which flow naturally: enterprise liquidity management, reserves and risk capital viewed as rental or consumptive capital.

Speaker: Samuel Achord, Quid Pro Bono Limited

D11: A Framework to Align Organizational Culture with ERM for SA Insurers

The ORSA contextualises ERM in the South African insurance regulatory setting. An insurer’s organisational culture may affect the ease of implementation and maturing of ERM processes. We derive a process to practically link the characteristics of the chosen Double S Cube organisational culture types with the chosen COSO principles of ERM. Through a questionnaire sent out to the South African insurers, we present an initial exploratory investigation into the industry’s organisational culture and ERM. The survey indicates that insurers exhibit a communal culture for each ERM principle, even though this was not expected for a few of the principles.

Speaker: Krishna Nagar and Mark Hayes, University of the Witwatersrand


AFIR/ERM Workshop AFIR Prize Paper Session

D12: Actuarial Mathematics and Crises, Past and Future.
In the aftermath of the 2007-2008 financial crisis, there has been criticism of mathematics and the mathematical models used by the finance industry.  After a synopsis of the financial crisis, we give a brief introduction to some of the common credit derivatives and highlight the difficulties in valuing some of them.  We analyse the criticisms of mathematics, and in particular the Gaussian copula model used to value credit derivatives, and draw out the lessons learned.  This leads us to touch on the risk management issues that have emerged from the insurance industry.
Actuarial mathematics and crises, past and future.
This talk is based on the paper “The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis’’, by C. Donnelly and P. Embrechts, published by ASTIN Bulletin 40(1), 2010, that was awarded The Bob Alting von Geusau Memorial Prize by AFIR.  Link to the paper:

Speaker: Catherine Donnelly, Heriot Watt University

Transfer time Thu, 02/06/2016 - 11:20 - 11:30 Transfer time
Workshop Thu, 02/06/2016 - 11:30 - 12:20 Workshop Session E

Pensions Sessions

E1: tPR: Goals for DC Pensions

We will present on three key questions:

  • What are The Pension Regulator's goals for DC arrangements?
  • What are the problems we foresee in DC arrangements?
  • How can trustees help individuals to make informed choices?

Speaker: Fred Berry, The Pensions Regulator


E2: Investment and Hedging in Light of Regulatory Change

Pension funds have a number of decisions to make regarding how they manage their investment portfolio and improve funding ratios.Capital costs at banks and insurance companies are increasing for certain types of exposures. For the typical pension fund growth portfolio, this creates a range of new and exciting investment opportunities, whilst also increasing the complexity (and cost) of LDI decision-making.With The plethora of changes being imposed (mandatory clearing, margining of bilateral derivatives, ring-fencing, leverage ratio and other prudential requirements), Pension funds need to equip themselves with the knowledge required to avoid the pitfalls and additional costs.

Speakers: Simon Freedman and Robin Thompson, RBS


E3: Latest EU Developments including IORP II

This session will deal with:

  • the likely impact on UK schemes and actuaries of IORP II; the second pensions Directive and
  • EIOPA's continued work on pension fund solvency including the recently published Stress Tests and their upcoming "Opinion" report on their recommendations for next steps.

Speaker: Paul Kelly, OFP Governance


Risk Sessions

E4: Better Decision Making and ERM

Lots of effort has gone into implementing ERM programmes, yet do they make organisations more successful? Better Decision Making ERM is an approach to ERM reporting that builds on solvency II/the actuarial control cycle to put risk management at the heart of the business plan and decision making. The result is that ERM is a core, not a control, activity, allows a better understanding of risk in practice, and goes some way to assessing management quality.

Speaker: Paul Harwood, Thinking Sun Limited


E5: Climate change - A Classic Risk Managment Problem

Following the publication of the Actuarial Resource and Environment Boards paper on Climate Change management and the October 2015 conference, this talk expands on the message in the paper that Climate Change is a risk managment problem - working from the principle that humanity's appetite for significant disruption to life as we know it on Earth is limited to explore and develop the associated risk tools for managing this risk - a taxonomy, key risk indicators and exploration of ruin scenarios.

Speaker: Sandy Trust, Grant Thornton and Nicol Aspinall, Willis Towers Watson


E6: Using Business Risk Reviews to Assist with Strategic Risk Management

This session will explore the use of business risk reviews to ensure that Risk is viewed as a strategic partner of the business and contributes effectively to the future success of the company.  It will cover the aims of a business risk review area, how these can be delivered, the establishment of a BRR team with business credibility, and experience in practice.

Speakers: Alastair Clarkson, Business Risk Review Director, Standard Life and  Steven Murray, CEO of 1825


Finance and Investment Sessions

E7: Longevity Risk and Investment Strategy

Many pension schemes now have very low levels of investment risk. As a result, longevity risk (or risks) is becoming more important in the context of the total level of risk being run. If these risks are not hedged, there are implications for the most appropriate investment strategy in terms of optimising risk/return trade-offs. In this session, we describe the different risks faced, how they can be measured and the implications for optimal investment strategies.

Speakers: Paul Sweeting, Legal and General Investment Management


E8: Systemic Risk Relevance of Pension Funds, Insurers and Asset Managers

This session will explore:

  • Current regulator, industry and market practitioner perspectives on systemic risk
  • Which types of institution can contribute to or transmit systemic risk
  • The relevance of systemic risk to pension funds, insurers and asset managers (as well as to banks and shadow banks)
  • Evolving public policy perspectives on systemic risk and their implications for actuaries

Speaker: Malcolm Kemp, Nematrian


E9: Risk and Capital Optimisation under Solvency II

Following a frenetic period of Solvency II approvals, insurers are redirecting efforts to focus on strategic initiatives and to optimise their balance sheets.In this presentation we focus on two of the areas on the top of senior management’s agendas:The Unit-Linked “VIF” assetThe Risk MarginWe give some background to these components of the new Solvency II balance sheet, illustrate the challenges and opportunities they present to firms, and then discuss some of the latest thinking on how to manage each component.

Speakers: Ross Evans and Stephen Makin, Hymans Robertson


Suitable for all areas:

E10: Risk and Investment Management: Pension Schemes vs Insurance Companies

This session will compare and contrast the risk management approaches and the investment strategies for pensions and insurance, including:

  • the different approaches to risk management
  • the different regulatory frameworks (IORP versus Solvency II, European perspectives, future convergence of regulatory approaches)
  • the impact of regulation on investment strategy (herding behaviour, market distortions, hedging instruments, gilts versus swaps)
  • the governance structures adopted (trustee boards versus corporate structures).

Speakers: Simon Richards and Martijn de Vree, Insight Investments


AFIR/ERM Sessions

E11: 2 x 25 minute talks in each session

E11: Pension Design and Risk Sharing: New Mix Solutions Between DB and DC

In classical pension design, there are essentially two kinds of pension schemes: Defined Benefit (DB) or Defined Contribution (DC) plans, corresponding to a different philosophy of risk attribution between the stakeholders: in a DB the main risks are taken by the organizer of the plan while in DC the affiliates must bear all the risks.   Especially applied to social security pension systems, this traditional view can lead to unfair intergenerational equilibrium in both cases.. The purpose of this paper is to present alternative architectures based on a mix between DB and DC.  An example of this approach is the Musgrave rule but other risk sharing will be presented. The main focus will be on the risk spreading between the generations in a pay as you go technique.

Speaker: Pierre Devolder, UCL

E11: Pensions with Recursive Utility: New Insights on Optimal Pensions
We analyze optimal consumption, including pensions,  when the consumer has recursive utility. We find the optimal pension, and illustrate that the recursive utility consumer will  smooth pension shocks across time and states of the world. This agent consumes and invests to mitigate shocks to the economy, in situations where the conventional consumer is just myopic. This has consequences for what products the financial industry should offer. The resulting model can be used to explain empirical puzzles for aggregates, indicating a plausible choice for the parameters of the utility function,  for the 'average' consumer in the context of life cycle model.

Speaker: Knut Kristian Aase, Norwegian School of Economics


E12: 1 x 50 minute sessions

E12: Replicating Portfolios

Solvency II requires insurers to calculate the one-year Value at Risk of their balance sheet. As for insurance liabilities closed-form solutions to their value are generally not available, approximation methods are used. Among these Least Squares Monte-Carlo (LSMC) and Portfolio Replication are prominent and widely applied in practice. In this presentation we compare both methods, and show that the Replicating Portfolio technique enjoys numerous advantages.

Speaker:  Antoon Pelsser, Maastricht University

Refreshments Thu, 02/06/2016 - 12:20 - 13:20 Lunch and Exhibition
Plenary session Thu, 02/06/2016 - 13:20 - 14:20 Plenary 6 - Practice area specific

Risk Plenary

Risk Management in Other Industries

Risk management is an important and growing area for actuaries and their employers/clients, but what can we learn from other industries?  Trevor Llanwarne CB, independent consultant and former Government Actuary will give us an insight into the risk management processes and developing ideas within the government and wider public sector.  Pete Naylor, Head of Decision Risk Analysis at BG Group and Society of Petroleum Engineers Distinguished Lecturer will share his experience working for a global oil and gas exploration and production business.

Speakers: Peter Naylor, Head of Decision Risk Analysis at BG Group and Trevor Llanwarne CB, Independent Consultant and Former Government Actuary


Pensions and Finance and Investment Plenary

The End of Certainty – Why we Should Regret the Passing of DC, What Caused it and What can We Do – A Challenge? 

Speaker: Paul Lewis, Presenter of Money Box on BBC Radio 4

Transfer time Wed, 01/06/2016 - 14:20 - Thu, 02/06/2016 - 14:30 Transfer time
Plenary session Thu, 02/06/2016 - 14:30 - 15:30 Plenary 7: The Magic of Behavioural Economics

Paul Craven's session on behavioural economics will cover why human beings have hardwired biases and often make 'mental shortcuts,' whether in the field of finance, risk or in life more broadly. He will highlight some of the key biases shown by investors, with reference to the behavioural traits in markets such as financial bubbles; and his talks are full of examples from both history and his 27 years of investment experience at Schroders, PIMCO and Goldman Sachs. Above all, Paul will offer practical advice on how firms and individuals can use behavioural economics for their competitive advantage. 

(And as a member of the exclusive Magic Circle, in a highly interactive talk he will demonstrate various ways in which the mind can play tricks...)

Speaker: Paul Craven

Plenary session Thu, 02/06/2016 - 15:30 - 15:40 Conference closing remarks

Papers and presentations will be available to download once you are registered to attend the event and when they are released by the IFoA (approximately two weeks before the event). 

Conference Papers